NITED STATES DEPARTMENT OF AGRICULTURE
a BULLETIN No. 1095

Vv October 12,1922

/

PRODUCERS’ COOPERATIVE
MILK-DISTRIBUTING
PLANTS

By C9) By TESNESS, Specialist in Cooperative Oieaiinaions W. H. BARBER,
; Assistant i in Marketing Dairy Products, and A. V. SWARTHOUT, Investigator
_ in Market Business Practice, Bureau of Agricultural Economics, and
i) C, E, CLEMENT, Market Milk Specialist, Dairy Division,
Bureau of Animal Industry

CON TENTS

Page
iliting e coopebative milk plant . seh Qualifications, mais) and responsibilities
Essentials for success Aa deanna ec Roa NG of managers --.+--+-+-+++-++-- 17
rketing contracts Selecting a manager . .
\ Problems in operating milk distributing
PANGS lar eeatini cuts. wireless wpiny tes erneinane
Route salesmen and deliverymen .. . .
; 3 Methods of increasing sales
g a suitable building . Costs of milk distribution . .
ion of a milk plant ; Necessity for adequate accounting system
' Essentials of an adequate accounting sys-

Essential records foran parieainate account-

ANesyste mas: siovsenaN es cre aha tease
Cost of keeping adequate records. . .. .
APPERGIS (hile, skal ataltan aaa eta vilealine

WASHINGTON
GOVERNMENT PRINTING OFFICE
* 1922

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Washington, D. C. Vv October 12, 1922

a GS COOPERATIVE MILK- DISTRIBUT-
ING PLANTS. |

By O. B. JESNESS, Specialist in Cooperative Organization, W. H. Barser,’ As-
sistant in Marketing Dairy Products, and A. V. SwArtHout, Investigator in
Market Business Practice, Bureau of Agricultural Economics, and C. E.
CLEMENT, Market Milk Specialist, Dairy Division, Bureau of Animal Industry.

Milk producers supplying a number of cities have undertaken to
solve some of their milk-marketing problems by the establishment of
cooperative milk-distributing plants. The objects sought and the
conditions which prompted the producers in their actions have been
varied. In some instances a number of producers, each delivering
direct to consumers, have sought to eliminate the duplication result-
ing from their individual route-delivery services and to reduce the
cost of distribution by establishing a cooperative plant with a cen-
tralized delivery system. Difficulty in procuring necessary farm
labor has been a factor in some instances in encouraging the estab-
lishment ef a central plant, since it enabled the producers to devote
more time to production.

Ordinances requiring tuberculin testing of all cows or the pasteuri-
_ zation of all milk under strict sanitary regulations of the health de-
partment have in some cases made it desirable for producers to estab-
lish a cooperative milk-pasteurization plant in order to comply with
the city ordinances. In some instances producers have purchased
privately owned plants with a view to effecting greater efficiency and
economy in handling and distributing ‘hells milk supplies. Low
prices and alleged unfair treatment from private concerns sometimes
have aroused action which has resulted in the establishment of coop-
erative plants.

Cooperative milk-distributing plants at present are located mostly
in small cities where a satisfactory system of distribution had not
previously been developed. Milk producers supplying the larger
cities usually have organized cooperative associations for the purpose
of acting as agents for their members in making contracts for the

1 Resigned.

108510°—22 al

2 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

sale of milk to city dealers. To distribute cooperatively a consider-
able proportion of the milk supply of a large city would require an
organization with a large capital. The problem of operating large
milk-distributing plants is more complex in large cities than in small
cities where the producers are located in the immediate vicinity of
the city in which the plant is established.

ESTABLISHING A COOPERATIVE MILK PLANT.

The advisability of establishing a cooperative milk-distributing
plant can not be determined without first having obtained complete
information as to local conditions. To obtain this information a
careful survey of the local situation should be made. This survey
should include such important factors as the present marketing
methods and conditions, existing marketing facilities, the direct bene-
fits of a cooperative plant to producers, the attitude of the producers,
the support likely to be given the enterprise, the volume of business
available, means of financing the venture, and such other information
as will be helpful in determining the possibilities of success in operat-
ing a cooperative plant.

An actual need for a cooperative milk-distributing plant should
exist among the producers. A desire and demand for a cooperative
plant should be manifested by the producers themselves. Unless
the sentiment of the producers is strongly in favor of a cooperative
plant, and they feel that a plant is an absolute necessity for the solu-
tion of their problems, adequate financial support and sufficient vol-
ume of business for successful operation may not be obtained later
when needed. Active leadership of a sane and sound character must
exist somewhere among the producers, for it will be required in the
administration of the business later by the board of directors.

ESSENTIALS FOR SUCCESS.

A first essential for success in a cooperative plant is sufficient vol-
ume of business to make economical operation possible. The actual.
supply of milk pledged for delivery to the cooperative plant must be
given careful consideration. If only a small part of the milk pro-
duced in the locality is pledged, it may be impossible to operate the
plant efficiently and economically. Specific figures can not well be
given, but it has usually been found that unless at least two-thirds of
the milk marketed locally is pledged to the organization, it is ad-
visable to defer the establishment of a cooperative plant until the
necessary support has been obtained. .

Efficient management is essential in any business. Especially is
this true in cooperative milk plants, because many technical and prac-
tical problems must be handled properly to obtain best results. Effi-
cient business methods are essential to good management and an ade-

COOPERATIVE MILK-DISTRIBUTING PLANTS. 3

quate accounting system is indispensable in keeping a check on the
business.

A conviction on the part of the members that cooperation, or a
working together, will benefit each individually is essential for the
success of the organization. The members should understand that as
members of a cooperative organization they must give it their moral,
financial, and material support, for its success depends directly upon
them. Every member should regard the cooperative milk plant as a
business enterprise whose success will contribute to his success. Its
cooperative features give it no supernatural power that will keep it
from failure when it is mismanaged or not properly supported by its
members. .

Before launching into the operation of a cooperative milk plant,
adequate capital for financing it should be assured. Unless the plan
of financing will permit the purchase of necessary machinery, equip-
ment, supplies, etc., when the plant is started, provide adequate work-
ing capital, and enable additional equipment to be purchased, when
needed, during the operation of the plant, sooner or later financial
difficulties will be encountered. Complete estimates of the total
capital investment should be obtained from reliable sources, and the
plan of financing adopted should adequately provide for the raising
or securing of the necessary capital funds. Large loans, bonded in-
debtedness, or other liens against the organization should be avoided.
No financial handicap should be placed upon the organization, for
the problems to be met may be difficult enough without introducing
unnecessary financial ones. In fact, the organization should be
started under most favorable conditions and the problems of financing
should be solved before the organization enters into the business of
muk distribution.

A fifth essential to the success of a milk-distributing plant, is the
maintenance of high standards in the quality of the product handled
and sold. The raw material received must be carefully produced
under sanitary conditions, must be handled by modern up-to-date
methods, and sanitary conditions must prevail in the plant. Without
high quality in the product, customers are likely to become dis-
satisfied and the business fail because of lack of patronage.

Another essential is a sound business policy in conducting the busi-
ness of the organization. Such a policy must be adopted by the
board of directors, for without it the manager can not know that
his action will meet with the approval of the board. An organiza-
tion with a board of directors that has adopted a sound business
policy may succeed with a mediocre manager, where otherwise it
might fail. Likewise an organization with a most competent man-
ager but having a board of directors which will not support a sound

4 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

business policy may be doomed to failure. It is obvious that the
board should be composed of men with an understanding of sound
business principles.

MARKETING CONTRACTS.

In cooperative milk-marketing organizations it has been found
desirable for the business relations between the producers and the
organization to be clearly defined in a marketing contract. By the
terms of such contracts the producers agree to deliver to the organi-

zation all the milk produced on their farms, except that required for ~

farm or household use. The organization in turn agrees to sell and
distribute the producers’ product and to make returns therefor in
accordance with specific provisions of the contract. Such contracts
tend to give greater stability and permanence to the organization.

METHODS OF FINANCING.

Rather large investment in buildings and equipment are required

in cooperative milk plants for the proper handling of milk and milk
products. Definite methods of financing must be worked out care-
fully and adapted to the form of organization to be employed. Co-
operative milk-marketing organizations may be financed either with
or without capital stock. In nonstock organizations the necessary
capital may be obtained from membership fees, cash payments for
certificates of indebtedness, or from loans made by the members,
while in organizations with capital stock the necessary capital is
secured by selling shares of stock. Cooperative milk-plant organiza-
tions usually have been formed with capital stock, as producers are
more familiar with this method. An equitable plan adopted by some
organizations requires each producer to purchase shares of capital
stock in proportion to the number of cows milked or the amount of
dairy products to be marketed at the plant.

In some organizations both common and preferred stock have been
issued. Preferred stock ordinarily is entitled to dividends before
any are paid on the common stock. The dividends on preferred
stock usually are cumulative, and it is customary to withhold voting
privileges from stock of this class. The plan of using both preferred
and common stock may be advantageous in some organizations, es-
pecially where it is necessary to sell stock to others than the mem-
bers and the producers wish to retain control of the organization
through ownership of common stock. However, it should be borne
in mind that all the preferred as well as the common stock of asso-
ciations that desire to come within the scope of the Capper-Volstead
Act must be held by producers.

COOPERATIVE MILK-DISTRIBUTING PLANTS. 5

A number of nonstock organizations have been financed through
the sale of certificates of indebtedness. These certificates are sold for
cash the same as capital stock. The rate of interest is fixed and date
of maturity stated on the certificate. They may be sold to any one,
since voting power is limited to members only. Usually the certifi-
cates of indebtedness are issued in series which mature in from 1 to
5 or 10 years with amortization coupons attached which mature an-
nually. These certificates are paid with sums deducted monthly from
patrons’ checks and for which the patrons are issued new certificates
annually. The interest on the certificates is considered an operation
expense and is paid from the reserve fund established for this pur-
pose. !

FORMING THE ORGANIZATION.

If the establishment of a cooperative milk plant appears advisable
after a very thorough survey has been made of the local situation,
the actual work of forming the organization can be taken up actively.
Preliminary meetings of the prospective members should be held
and the proposed plans of the organization thoroughly discussed at
such gatherinys. If the successful establishment of a plant seems
feasible, an organization committee should be chosen at a called meet-
ing of the prospective members. This committee should proceed
with the formation of the permanent organization, including the
drafting of suitable by-laws, a marketing contract, and plans for
financing the proposed plant.

Subcommittees of the organization committee may be selected to
undertake various lines of work. Thus, there may be a subcommittee
on membership and a subcommittee to obtain information on the cost
of plant and equipment. The latter committee may find it beneficial
to inspect the operation of plants already established. First-hand
information regarding methods employed, difficulties encountered,
and problems to be met in a new plant will be most useful and
valuable.

After the organization committee and its subcommittees have com-
pleted their preliminary work, a meeting should be held at which
the question of perfecting a permanent organization should be
decided definitely. Where it is decided to establish a milk-distribut-
ing plant, the various plans submitted by the organization committee
should be discussed and approved with such changes as seem advis-
able. Temporary directors should be elected at this meeting and
authorized to proceed to incorporate the organization.

INCORPORATING THE ORGANIZATION.

The committee that works out the organization plans should obtain
all information possible relating to the corporation laws of the State
in which the organization is being formed, because the plan must fit

6 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

the requirements of the law under which the organization is to be
incorporated. Many States have one or more special laws providing
for the incorporation of cooperative associations, and it is usually
advisable to incorporate under a cooperative law wherever prac-
ticable.

Laws designed for noncooperative business corporations in many —

cases are not best suited to cooperative organizations, as such laws
generally grant each share a vote and provide for dividends on

capital stock. Equal voting rights and privileges in cooperative

organizations are important and should be adhered to very closely
in forming such organizations.

The exact procedure to follow in incorporating an organization
depends upon the provisions of the State law under which the
organization is to be incorporated; consequently no general plan
covering all details can be given. Legal counsel should be employed
in obtaining the necessary legal information and in preparing the
papers for incorporating the organization.

The temporary board of directors may serve as incorporators, or
a committee may be selected for this purpose.

BY-LAWS OF THE ORGANIZATION.

If by-laws have been approved by the milk producers at the gen-

eral meeting they should be adopted after the incorporation has been
completed. The organization then may undertake the objects for
which it was established. The by-laws of a cooperative organiza-
tion should clearly define the purposes for which it is organized and
specifically provide for the management, financing, and conduct of
its business. Local conditions and plan of financing and operating
the organization should be taken into consideration in preparing the
by-laws, in order that they may provide for the needs of the organi-
zation.

A suggested form of by-laws which may serve as a guide in the
preparation of by-laws suited to the needs of cooperative milk-pro-
ducers’ organizations is given in the Appendix. Changes necessary
to adapt them to local conditions and the requirements of State law
should be made.

OBTAINING A SUITABLE BUILDING.

One of the first questions to be considered by an association is
whether to erect a new plant or to rent a building temporarily until
such time as a new building can be erected. Sometimes, when the
amount of available capital is limited, it may be well to rent a build-
ing, if a suitable one can be found, until the capital necessary for the
new building can be raised. One of the important considerations, of

abn Hs ow

COOPERATIVE MILK-DISTRIBUTING PLANTS. i

course, will be to ascertain if there is a suitable building available
for the purpose. Not every building can be remodeled to fit the
requirements of a milk plant, and in some cases the cost would be
prohibitive.

The building, in the first place, must be conveniently located. It
must be so located that it will be easily adapted to the convenient
receiving of the members’ milk and the loading and unloading of
the delivery wagons. Entrance from at least two sides of the build-
ing is desirable. Location in respect to sanitation must also be con-
sidered. Good air, good light, and good general surroundings are
essential. The floors of the plant should be of concrete, and if the
building does not have concrete floors, it should be so constructed
that the floors can be concreted. It is important that the foundation
be strong. The building must be capable of being so remodeled
that a convenient plant arrangement for the conduct of the work
can be secured. ‘There are many factors to be considered in select-
ing a suitable building in which to locate a milk plant and it is
usually advisable to obtain the assistance of a man who has had plant
experience.

The erection of a new building at the beginning has many ad-
vantages and is usually advisable if the capital is available. A new
building of modern construction will serve as an advertisement, and
if there is much competition it will be found that an up-to-date plant
is a big asset. Such a plant will attract the attention of the public
and will be a great aid in getting the business established. Visitors
to such a plant are well impressed, and in this way new business is
more easily procured.

Unless a satisfactory building can be purchased at a saving of at
least half of the cost of erecting a new building, together with the
cost of the lot, it usually will be better to rent a building temporarily
until a new one can be constructed, as the advantage accruing from
the proper construction and See of a new buildime would
easily overbalance the difference in cost.

LOCATION OF A MILK PLANT.

If a new building is to be erected, the site should be carefully
selected. Whether to erect a plant on an expensive site in the busi-
ness section of the city or to go further out, where property is less
expensive, is an important question to be decided. If much competi-
tion is to be encountered, an attractive and prominent location is of
value from an advertising standpoint. An attractive plant located
in the down-town section of the city or on a prominent street is not
only a good advertisement but often results in a large quantity of cash
gales at the plant. However, it is not good policy to buy a very ex-

8 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

pensive site unless competition and the retail sales at the plant will
be of considerable importance. In a small or medium-sized town the
site should not cost as much as the building. In general, a site must
be selected where good drainage and sewer arrangements can be had,
as well as an abundant water supply and electricity for light and
power.

The advisability of selecting expensive property in the business
section will depend on the local situation. As a general rule, this is
unnecessary if a suitable location can be obtained a short distance
away at a considerable less cost.

TYPE AND CONSTRUCTION OF BUILDING.

The type of building to be selected of course depends a great deal
upon local conditions. It is desirable to have a building that is
modern and sanitary in every way, both from the vere stand-
point and as regards economy and public health.

In general, the building should be sanitary and up to date, attrac-
tive in appearance inside ia out, with a convenient arrangement of
floor space. In selecting the materials for construction, local con-
ditions must be considered. A permanent building is essential and
a wooden structure is usually not advisable. Whether to use brick,
concrete, or some other material will depend somewhat upon the local
situation as to cost of materials and labor. Brick, concrete, and
hollow tile finished with stucco on the outside and cement on the inside
are the most common materials used. All of these materials are com-
paratively permanent and can be constructed practically fireproof.
They are much more desirable than wood, and the cost of upkeep and
repair is much less.

The floors in the plant should be of concrete and properly laid.
Where cans and trucks are rolled constantly over the floor, iron plates
may be embedded in the cement to protect the floor. Drainage pipes
should be put in place before the floors are laid and sanitary traps
should be installed in such places as will provide good drainage in
the various rooms.

Plenty of natural light is essential, and no expense should be spared
in providing many windows.

Good ventilation is also essential in a milk plant. While windows
may provide satisfactory ventilation in small plants, medium-sized
and large plants should have some system of artificial ventilation.
This may be accomplished by such devices as exhaust fans, ventilating
flues, and ventilating shafts.

The type of building will depend on the site and on the equipment
selected. The equipment, therefore, should be selected before the
plans for the building are made. It is generally advisable to build

COOPERATIVE MILK-DISTRIBUTING PLANTS. «(9

a large plant of about two to three stories, so that the milk may flow
by gravity from the various pieces of equipment in the plant. There
is very little advantage in having a plant of greater height than two
and one-half or three stories unless the site is very expensive.
The labor required to operate a plant of several stories is usually
considerably greater than in a lower building because of the ne-
cessity of having a foreman for each floor. Small plants may be only
one story high, and one-story buildings can often be remodeled into a
satisfactory milk plant with less labor required for their operation
than in the case of a two-story plant.

ARRANGEMENT OF THE PLANT.

The rooms in the plant should be divided and laid out so that the
plant operations can be carried on with the minimum of labor and
machinery, and so that the milk may be handled in a sanitary manner.
Plans should be drawn by a competent architect, showing the layout
of the rooms and the location of the machinery and equipment. These
plans should be carefully studied, and before the final arrangement
is decided they should be submitted to the local health officials for

approval.
RECEIVING ROOM.

The milk-receiving room should be separate from the other rooms
and should be well screened to keep out flies. This room should
be located so that the milk may be conveniently received direct from
the producers’ trucks. The floor of the receiving room should be on
a level with the floor of the ordinary truck. A convenient arrange-
ment is to have the floor of this room elevated about 3 or 4 feet, so
that the milk may be readily received and dumped into the weigh
ean, from which it may flow by gravity to a receiving vat. If this
is not feasible, the receiving vat may be lowered below the floor
level. The receiving room should contain scales, weigh can, sample
jars, etc. In the receiving room or in an adjoining room facilities for
properly washing and sterilizing the cans should be provided, so
that the cans may be returned to the producers in good condition.
Apparatus of ample size should be provided for cleansing the cans
quickly and thoroughly.

&
WASHING AND STORAGE ROOMS FOR BOTTLES.

The bottle-washing room should be so located that the empty
bottles can be received as conveniently as possible from the delivery
wagons. This room should be of ample size to provide space for the
bottle-washing machine and plenty of room for the workmen. Where
the bottles are held for a time before washing, the room must be

108510°—22——2

10 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

larger than where the bottles pass directly from the delivery wagons
to the bottle washer. |
A clean bottle-storage room is of considerable advantage for
storing bottles after washing. This room should be located between
the bottle-washing room and the bottle-filling room. In this room
the bottles are allowed to remain after washing until cooled, when
they may be filled. It is important that there be no congestion either
at the milk-receiving door or the door where the empty bottles are
received. Therefore, these two doors should be widely separated.

PROCESSING ROOM.

The milk-processing room may contain the pasteurizing equipment
and the bottle-filling apparatus, or the bottle filling may be done in a
separate room. Where a bottle-storage room is not provided there
must be space in the filling room for the empty washed bottles. A
convenient arrangement may be accomplished by having the pasteur-
izing equipment ona half-story or raised floor, so that the milk may
flow from it by gravity through the cooler to the bottle-filling appa-
ratus. On the floor above should be placed the milk-storage vats.
Gravity flow of milk is preferable to the use of milk pumps. The
only milk pump required with an elevated-floor arrangement is one
to raise the milk from the receiving tank on the ground floor to
the storage tank above.

MILK-STORAGE ROOM.

A well-insulated milk-storage room is necessary in all milk plants.
This room should be insulated with about 4 inches of cork, with ce-
ment on the inside and outside. It should be located so that the milk
may pass directly into it from the bottling room and, at the same
time, be convenient for loading the delivery wagons. ‘The door
should swing outward, in order to save refrigeration space, and it is
well to have the room as nearly square as possible. The size of the
room will depend on the quantity of milk to be stored. There should
be enough room to store conveniently all the milk of one day’s run’
with convenient working space.

The following are the approximate sizes of milk-storage rooms re-
quired for plants handling various quantities of bottled milk.

®
Quantity
of pote Size of room.
handled.
Gallons. Feet.
300 8by 8
500 10 by 10
1, 000 12 by 15
2, 000 18 by 20
4, 000 24 by 30

Le

COOPERATIVE MILK-DISTRIBUTING PLANTS. 11

A convenient arrangement for loading the delivery wagons may
be provided by having small doors placed in the outer wall of the
milk-storage room, so that the wagons can be loaded directly at these
doors. To do this the room should be placed next to an outer wall,
with driveway for the delivery wagons.

EQUIPMENT OF THE PLANT.

Equipment for a milk plant must be carefully selected. In some
cases used equipment can be purchased, but it is usually not a good
plan to buy secondhand equipment unless it 1s in very good condi-
tion. When a business is taken over, or when several small dealers
combine, considerable used equipment is usually available. How-
ever, much of this equipment may not be suitable or of the proper
size or capacity, and it may be better to sell or discard it than to try
to use it. Some of the equipment may be used for a short time until
new equipment can be obtained; for example, a small bottle washer
may be used until a larger and more suitable one can be purchased.
Usually pasteurizers and bottle-filling machinery should be bought
new, and much care should be used to procure the best available. Of
course, secondhand bottles, cans, cases, etc., can be used. The advice
of persons of experience is necessary when the purchase of second-
hand equipment is contemplated or when new equipment is selected.
The following are some of the points to be considered in selecting
milk-plant equipment:

(1) Simplicity. The number of working parts should be as few
as possible to do the required work efficiently.

_ (2) Ease of cleaning. There should be a minimum of inaccessible
parts, for they make daily cleaning difficult.

(3) Ease of sterilizing. It is important that all milk apparatus
be sterilized daily. The more easily this can be done the more likely
it is that the work will be done properly.

(4) Ease and economy of operation. Unless a machine can be
operated economically, it will be a liability to the user rather than an
asset. If it can be operated easily much less attention will be re-
quired.

(5) Durability. Apparatus_of poor quality usually is most costly
in the end; durability is an important factor.

(6) Initial cost. While cheap apparatus may cost the most in the
end, it is not always necessary or advisable to buy the highest-priced
equipment.

(7) Efficiency. In the case of pasteurizers, efficiency in holding
the milk at a certain temperature should be considered. It is very
important in pasteurization that the milk be positively held at 145° F,

12 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

for 30 minutes. It is important that equipment of ample capacity to

handle the maximum output of the plant be selected. However, the

pasteurizers should not be so large that they will wear out an de-

preciate before the business is developed to the point that large-
capacity equipment is required.

For small plants the work must be so arranged that men can bs
shifted from one kind of work to another, while in larger plants more
specialization in the plant operations can be maintained. For this
reason the equipment in small plants must be large enough to permit
the pasteurizing and bottling to be done in from two to four hours,
leaving the remainder of the day for other work.

LISTS OF EQUIPMENT.

Below are lists of the principal equipment required for milk plants,
grouped as follows: (1) Small plants, less than 250 gallons daily;
(2) medium-sized plants, 250 to 1,000 gallons daily; and (3) large
plants, over 1,000 gallons daily.

(1) Equipment for small plants (less than 250 gallons) :

Platform scale (double beam).

Temperature recorder.

Pasteurizing vat (100 to 300 gallons capacity).

Tubular cooler (if milk is cooled in the vat, cooler may be eliminated).

Small bottle filler (a filler designed to fill four bottles at a time is satis-
factory).

Bottle washer (consisting of a turbine brush with rinser and steamer).

Bottle cases (about two sets of cases will be required).

Cans (cans for delivery of milk to wholesale trade; farmers should pro-

vide cans for bringing the milk to the plant).
10 to 15 horsepower boiler.
3 to 5 horsepower motor.
Brine tank.
Can wash sink with steam jet.
Small separator (about 2,000 pounds per hour).
Small churn (100 pounds butter capacity).

Milk storage room (a room of about 6 by 8 feet provides enough space

to store one day’s supply of bottled milk).
Babcock tester (12-bottle size).
Steam and water hose with fittings.
Steam and water piping.
Milk pump (if gravity is used no pump is required).
Sanitary milk piping and fittings.
Belting, shafting, pulleys, hangers, etc.
A supply of bottles, caps, washing powder, coal, ete.
(2) Equipment for medium-sized plants (250 to 1,000 gallons) :
5-beam platform scale or a dial scale.
2-compartment weigh can.
Receiving vat (200 to 400 gallons capacity).
Sanitary milk pump (capacity 6,000 pounds per hour).

ee ee ee eed

COOPERATIVE MILK-DISTRIBUTING PLANTS. 13

(2) Equipment for medium-sized plants—Continued.

Clarifier (6,000 to 8,000 pounds per hour). This may be eliminated if a
satisfactory filter or strainer is provided.

Sanitary milk piping and fittings.

Pasteurizing and cooling outfit (capacity about 4,000 pounds per hour,
including recording thermometers and temperature control).

1 or 2 automatic fillers and cappers (separate filler for buttermilk

_ should be used).

1 hydraulic bottle washer.

1 small bottle washer with turbine brush.

1 can washer, rinser, steamer and dryer.

1 forewarmer.

1 separator (2,000 to 4,000 pounds per hour).

1 combined churn and butter worker (churning capacity 150 gallons of
cream).

1 butter printer, etc.

1 vat with coil, for buttermilk (about 300 gallons).

1 starter can.

. 1 300-galion cheese vat.

1 drain rack,

Trucks and conveyor track.

1 5 to 10 ton refrigerator outfit with brine tank, brine pump, etc.

1 steam boiler (20 to 40 horsepower).

Motors (10 to 20 horsepower).

1 steam engine (12 to 20 horsepower). Direct-connected motors may be
used on some of the machinery and if desired all power may be pro-
vided by motors.

Chemical and bacteriological apparatus.

Cans.

Bottle cases.

Shafting, belting, hangers, pulleys. ete.

Steam and water piping and fittings.

Steam and water hose and fittings.

Supplies of bottles, caps, washing powder, etc.

(3) Equipment for large plants (more than 1,000 gallons).

5-beam platform scales or dial scale.

1 can drainer,

1 double-compartment weigh can or quick-dumping weigh can.

2 receiving vats (400 to 600 gallons each).

Sanitary milk pump.

Sanitary milk piping and fittings.

1 forewarmer. ,

1 or 2 clarifiers (8,000 to 12,000 pounds capacity) or an efficient filter.
1 or 2 insulated milk-storage tanks.

1 or 2 separators (8,000 to 12,000 pounds capacity).

Pasteurizing and cooling outfit (capacity 6,000 to 10,000 pounds per
hour), including recording thermometers and temperature control.

1 small pasteurizer for cream.

1 small tubular cooler.

2 to 4 automatic fillers and cappers.

1 large hydraulic bottle washer.

1 small bottle washer with turbine brush.
1 can washer, rinser, steamer, and drier.

14 BULLETIN 1095, U. 8. DEPARTMENT OF AGRICULTURE.

(3) Equipment for large plants—Continued.

1 combined churn and butterworker (churning capacity 300 gallons of
cream).

Butter printer, ladles, packers, ete.

Trucks and conveyor track,

1 starter can.

1 special exhaust-steam heater and storage tank (to supply hot water for
pasteurizing and washing purposes).

1 300 to 600 gallon ripener.

1 to 2 cheese vats (300 gallons capacity).

2 drain racks.

Curd knives, curd pails, paddles, and whey strainer for cottage-cheese
making.

Buttermilk vats (300 to 800 gallons capacity).

Refrigerating equipment (20 to 40 tons), with compressor, condenser,
brine tank, brine pump, and all necessary piping and fittings.

Boilers (60 to 200 horsepower).

Engine (40 to 80 horsepower).

Motors (30 to 100 horsepower).

Milk cans, bottles, and cases.

Belting, shafting, pulleys, hangers, steam and water piping and fitting,
ete.

Chemical testing apparatus.

Bacteriological testing apparatus.

OFFICE EQUIPMENT.

Besides the equipment listed, office equipment will be required.
Small plants require only a desk with chairs and possibly an adding
machine, check protector, and a safe. Large plants require, in addi-.
tion, typewriters, computing machines, addressing machines, filing
cabinets, and most of the equipment required in a modern business

office.
DELIVERY EQUIPMENT.

The delivery equipment required depends on the kind of trade
served and its accessibility. Automobile trucks often may be used
economically in serving wholesale trade. Where considerable terri-
tory has to be covered and for very scattered retail trade the auto-
mobile may be used economically. Use of horse and wagon, however,
is the most common and satisfactory method of delivering to retail
trade. It has many advantages over the automobile. One man can
deliver a load of milk from a horse-drawn wagon, but usually at least
one extra man will be required on an automobile truck. ‘The constant
stopping and starting necessary on a retail milk route is not favorable
to the use of an automobile for such delivery, although recently
electric-driven trucks are giving economical service.

The quantity of goods that can be delivered from a wagon or
truck depends primarily on how scattered the trade is, the method

COOPERATIVE MILK-DISTRIBUTING PLANTS. 15

of delivery, whether many flights of stairs must be climbed, ete.
Tn the ordinary city, where there is more or less competition, about
250 to 3800 quarts of milk, with the usual quantity of cream and
other dairy products, are commonly carried on a retail wagon. For
wholesale trade one delivery outfit will handle 500 to 1,500 quarts,
depending on the type of streets, distance apart of the customers,
and similar factors.

PN ESE ENTS IN PLANT AND EQUIPMENT. :

If a building is en or bought it must be remodeled to fit the
requirements of the business and this remodeling will cost, depend-
ing on the size and condition of the building, from $500 to $5,000
or more. The rental of a building will, of course, depend upon local
conditions, location in the city, on size of building, etc., but this
will usually vary from $30 to $150 per month.

The money that must be invested in a new building will depend
on the quantity of milk to be handled, materials of construction
used, cost of labor, local conditions, etc. Table 1 shows the invest- ©
ments in plant building at 27 representative producers’ milk plants
of various sizes located in various cities throughout the country.
While there are wide variations in cost, caused by lack of standardi-
zation of buildings, varied materials used, and other factors, these
figures will give a general idea of the approximate amount of money
that will have to be invested in a building.

The cost of milk-plant equipment depends on the quality and

size and the cost of transportation. In Table 1 are also shown the
investments in plant equipment in 27 producers’ cooperative plants

of various s1zes.

TABLE 1.—Investments in plant and equipment at 27 producers’ cooperative milk
plants, arranged according to quantity handled.

: , Investment in plant

Naalage Investment in plant. equipment.
Num- | number
Size of plant (gallons handled daily). | ber of | gallons

plants.| handled Average | Average | Average

Average per

aily per per
Plant. sAncne plant. gallon.
pov eallons orless... 15... 22-2 -4----+---. 9 413.9 1 $10, 000.00 | 1 $25.97 | $11, 811.21 $28. 73
DOL Com, 000 gallons! 2522055. 3255525205. U 793 2 18, 977. 87 222.77 | 25, 208.68 31.79
1,001 to 2 OOO allons:. = ee c= ce BE 5 | 1,760 2 22; 515. 76 211.69 | #20, 933. 77 311.89
2,001 to 8,000 AOUS EEE ees seek eee cae 6 | 4, 199. 66 94, 750. 25 19.14 | 60,960.15 12. 34
27 | 1,602.7 36, 339. 02 19.45 | 26, 624, 28 16.97

1 Only 5 plants in this group.had eae of their own.
2 One plant in this group rented a buildin:
3 One plantin this group handled mostly ail wholesale.

a6 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

TABLE 1.—IJnvestments in plant and equipment at 27 preducers’ cooperative milk
plants, arranged according to quantity handled—Continued.

Investment in

delivery equipment. Total investment.
Num-
Size of plant (gallons handled daily). ber of
plants.| 4 verage Aree Average per i waee
per plant. | sallon oe gallon.

9| $2,893.75 | 196.66 | 2$21,433.44 | 1$51.70
7 | 11,185.79 14.07 | 349,985.43] 363.04
5| 7146.08 | 44.33 | 3449, 482.13] 3498.11
6| 19,475.25| +5.21 | 5155,136.34] 536.97

27| 8, 556. 39 7.02 | 63,749.18 39. 54

500 gallons or less ...
501 to 1,000 gallons. - .
1,001 to 2,000 gallons. --
PAO Oe Ko) ey 0,0)0) ere n KoaS eee ee ee eae ea

The average investment in plant buildings at 84 privately owned plants ranging in size from 100 gallons
to over 10,000 gallons daily was $24,183, and the average investment per gallon handled daily was $13.27
based on 1916 prices. See U.S. Department of Agriculture Bulletin No. 849. :

The average investment in plant equipment at 125 privately owned plants ranging in size from 100 gal-

lons to over 10,000 gallons daily was $24,475, and the average per gallon handled daily was $11.59, based on

1916 prices. See U.S. Department of Agriculture Bulletin No. 890.

1Qne plant in this group had no delivery system.

2 Only 5 plants in this group had buildings of their own.
3 One plant in this group rented a building.

4QOne plant in this group handled mostly all wholesale.

5 Two plants in this group had no delivery system.

Below are estimates of the approximate cost of the principal plant

equipment for plants of various sizes. These figures include the cost
of the principal equipment required, together with an initial supply
of cans, bottles, cases, etc.

100-gallon plant, $1,500 to $2,000. 2, 000-gallon plant, $25,000 to $35,000.

500-gallon plant, $4,000 to $6,000. 4,000-gallon plant, $45,000 to $60,000.
1, 000-gallon plant, $15,000 to $25,000.

The following is an estimate of the cost of delivery equipment, not

including stable or garage.

100 gallons, $500 to $700. 2, 000 gallons, $10,000 to $15,000.

500 gallons, $3,500 to $4,000. 4,000 gallons, $20,000 to $30,000.
1, 000. gallons, $5,000 to $8,000.

In Table 2 are given estimates of the amounts of money required
to establish and operate plants of various sizes. While these figures
show great variation, a general idea of costs may be obtained from
them.

TABLE 2.—Hstimated amounts of money required to establish and operate plants
handling various quantities of milk daily.

Number of gallons to be handled “148 Rent of buildin ‘ Delive

§ daily. Building. on ance 8 | Plant equipment. é quien one
AOOO 2508S 2. ele ki Cee rea Se $1, 500 to $6, 000 $25 to $50 | $1, 500 to $5, 000 $500 to $2, 000
ZO TOWMOO ese ee eet ee 4,000 to 10, 000 40 to 75 3,000 to 8, 000 1, 200 to 3, 500
HOO TO1:0001 Hi alts CL pie 10, 000 to 18, 000 60 to 100 6, 000 to 20, 000 2,500 to 7,000
OOOO QO0N 2 Se eee ae 155000 to-25; 000" |. 22. -- 1. eee 15, 000 to 35, 000 5,000 to 14, 000
2,000)60:4;0002 so oS eS See 18;,000 (0750, 0004) see 2s ee 25, 000 to 50, 000 10,000 to 28, 000

x ‘ 7 a *
Ee on eae ae Ee OR ee a ee oe

COOPERATIVE MILK-DISTRIBUTING PLANTS. 17

TABLE 2.—EHstimated amounts of money required to establish and operate plants
handling various quantities of milk daily—Continued.

Number of gallons to be handled daily. Office equipment.| Working capital. Total.
LUND ROSATI SE RAs Re Sala aa TA Ug a $50 to $300 $300 to $750 | $3,850 to $14, 050
POUNLOTOOU as om MATAR LANA A LEANER RE oe 200 to 600 750 to 1, 500 9,150 to 23, 600
PILL Te il el i Raa Saar 500 to 1,000} 1,500t03,000 | 20,500 to 49, 000:
aero OND SITE VIII Oi ATI 1,000 t0 1,800 | 3,000 to 6,000 | 39,200 to 81, 800
TEC TD HO ZELU DI AR pe i a GH 1,500 to 2,500 | 6,000 to 12,000 | 69,500 to 142, 500:

For detailed information regarding construction, arrangement and equipment of city milk plants see.
U. S. Department of Agriculture Bulletins Nos. 849 and 890. :

MANAGEMENT OF MILK DISTRIBUTING PLANTS.

The success of business organizations is largely dependent upon
competent management. A milk-distributing plant is no exception
to the general rule. In fact, milk distribution is a business of many
details and success is dependent upon the ability of the manager to
organize and conduct the business so that every detail is properly
performed.

In cooperative milk-distributing organizations, the necessary legal
and supervisory authority is vested in the board of directors, who
are elected by and from the members or stockholders. The business |
management and supervision of the milk-distributing plant is in-
trusted by the board of directors to the business manager. Where
the business is large and it is impossible for the manager to supervise
personally each operating branch, superintendents, foremen, or man-
agers of the various departments are employed. Thus the operation
of a milk-distributing plant may be divided into such departments.
as buying, receiving, processing, bottling, manufacturing, account--.
ing, and sales, In such an organization of the business of a milk-
distributing plant, the manager must have superior executive and
administrative ability, so that the highest possible standard of effi-
ciency may be obtained in each department and each department’s
activities correlated with the others, to the end that a unified, sys-
tematized, efficient operation of the entire business may prevail.

QUALIFICATIONS, DUTIES, AND RESPONSIBILITIES OF
MANAGERS.

The qualifications for a milk-plant manager in education, training,,
and experience depend in a large measure upon his duties and re-
sponsibilities, which necessarily vary with the size of the business.
Ordinarily, he is expected to formulate the policy and basis for de-
termining prices at which different grades of milk, cream, and by-
products are to be sold to different classes of trade. The manager

108510°—22——_3

18 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

should obtain all available information regarding the present and
prospective local market demands and sources of market supply. He
should formulate and execute plans for the most economical methods
of collecting, processing, and manufacturing by-products, and of
selling and distributing the products of the plant. In order that he
may justly be held responsible for the successful conduct of the busi-
ness as a whole, he should have authority to employ and discharge
all labor.

In small and medium-sized plants, where it may be necessary for
the manager to give direct personal supervision to the many minor
‘details, and where he may be required to put his hand to any task,
it is obviously desirable for him to be thoroughly experienced and
able to handle every physical and mechanical detail. In larger plants
the responsible supervision of the detail work in the milk-handling
department is intrusted to a plant superintendent or foreman, and
the larger duties of the manager are executive and administrative,
having to do more with questions of business policies which require
a knowledge and training in business administration than with fac-
tory detail which requires technical training supplemented by fac-
tory experience. It is always desirable that the manager have an
extended knowledge of, and be familiar with, detail plant operations,
- in order that he may be fully conversant with the problems of the
various departments of the business and be able to formulate plans
and policies with the various superintendents for the more efficient
and economical conduct of their departments.

The duties of a milk-plant manager in small plants obviously may
be numerous and varied, while in larger plants they become more
executive in character, with the routine and detail duties performed
by other employees. In small plants the overhead costs, including
salaries of manager and employees, must be kept at a minimum;
hence the manager may be obliged to perform much manual labor in
addition to supervising the work of other employees.

The manager of a milk-distributing plant has perhaps greater re-
sponsibilities than any other employee. In small plants he is obliged
to assume full responsibility for all work done, while in larger plants
this responsibility may be shared with the superintendents and fore-
men.

The manager in every plant, whether large, medium, or small,
must be in close touch with each operating department, for responsi-
bilities can not be assumed safely unless the activities of the depart-
ments are conducted in accordance with well-defined policies. He
must also have access to reports or records of the entire business, in
order to formulate plans and policies for its successful conduct.

COOPERATIVE MILK-DISTRIBUTING PLANTS. 19
SELECTING A MANAGER.

In considering the employment of a milk-plant manager, his
qualifications in reference to all factors which make for the success
of a milk-distributing plant should be considered. Where the
organization is newly formed and a plant must be constructed and
equipped, it is usually desirable to employ the manager early, so that
his advice in matters of arrangement and equipment may be ob-
tained and that he may have ample time to determine upon best plans
and policies for the conduct of the business before it is undertaken.

In selecting a manager due consideration should be given by the
board of directors to the local conditions and problems to be met.
Previous successful experience along business lines of the same or a
similar character is a valuable asset, as are dairy-school training and
a knowledge of the manufacture of by-products.

The employment of a manager largely because he is willing to ac-
cept a lower salary than others is a mistake to be avoided. Quality
_of service and price should be as much coordinated in the person of a
competent manager as in the product. produced and sold by the milk-
distributing plant. Experience in the sale or manufacture of milk
by-products, such as butter, cheese, ice cream, and condensed milk,
does not necessarily qualify a man for the position of manager of 2
market-milk distributing plant. Milk by-products are less perishable
than milk and their sale does not involve such a highly organized
house-to-house distributing system as market milk. By-product.
marketing does not often afford experience in retail-route adminis-
tration nor in the intensive development of new business such as is.
required in a milk plant. Competent milk-plant managers are in
active demand everywhere. In small plants they receive salaries of
$6 to $10 per day or above, which in fact are scarcely above those.
of capable workmen, whose responsibilities may be considerably less..
Managers’ salaries in large plants range from $2,400 to $6,000 and.
above per annum (either straight salary or salary and commis-
sion) and are based not so much on the size of the business as on the.
results or success obtained.

Frequently such agencies as the State colleges of agriculture, State:
dairy and food commissioners, the United States Department of
Agriculture, dairy and creamery equipment and supply houses, and
dairy trade journals have knowledge of persons capable of managing
milk plants and are able to give assistance in locating them. They
also may be secured from the ranks of successful small-plant mana-
gers or department superintendents in large plants.

20 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.
PROBLEMS IN OPERATING MILK-DISTRIBUTING PLANTS.

The foregoing statement regarding the duties and responsibilities
of a milk-plant manager indicates that he may have many problems
with which to deal. For the purpose of separate discussion of the —
more important phases of each, they will be considered under the fol-
lowing classification :

(1) The securing of an adequate and proper milk supply.
(2) Efficient and economical plant operation.
(3) Sales policies and methods of market distribution.

As consideration is given to each of these, it is well to keep in mind
that the manager is responsible to the board of directors, and he
should cooperate with it on all matters involving business policies and
geek to obtain counsel and advice in formulating them.

THE SECURING OF AN ADEQUATE AND PROPER MILK SUPPLY.

Three problems arise in every milk plant, in obtaining a milk sup-
ply. These are (1) source of an adequate supply, (2) maintaining
proper quality in the supplies received, and (3) determining upon an
operating policy which largely eliminates financial risks and losses.

In cooperative plants, the larger part of the supply is usually re-
ceived from the patron members, but usually not to the entire exclu-
sion of the product of nonmembers. A closed organization against
nonmembers is often not desirable, even though patron members may
be able to furnish an adequate supply. By providing a satisfactory
market for dairy products, the establishing of competing plants ts
discouraged and production is encouraged. In practically every
plant it is necessary to operate a by-products department, in which
the surplus supplies may be manufactured into butter, cottage cheese,
and other products. Although by-products may be sold ordinarily
at lower net prices and on narrower margins than market milk, the
overhead costs of the plant may be reduced by increasing the volume
of product handled. Also, the handling of a surplus allows op-
portunity for expansion of sales in the milk department.

To obtain adequate supplies of milk of highest quality, country
collecting routes are often employed in reaching patrons in neighbor-
ing sections, and receiving and cooling stations are operated at points
from which delivery is made by rail or by motor truck. Certain ad-
vantages are often obtained by the operation of collecting routes, for
the milk is picked up at the farm and needless duplication in delivery
by individual producers is eliminated. :

The ordinary charge for collecting, which includes the return of
empty cans, may range from 1 to 5 cents per gallon, depending upon
local conditions,

i COOPERATIVE MILK-DISTRIBUTING PLANTS. 21

Closely related to the problem of obtaining an adequate supply is
that of maintaining proper quality in the supplies received. Much
may be accomplished in improving the quality of the supply received
by educational work among the producers and by offering incentives
in the price paid the farmer for the production of the better qualities.
Constant attention, both at the plant and on the farm, should be
given to the quality of milk furnished by each producer, and frequent
tests should be made to determine the purity and butter-fat content.
Premiums based upon the butter-fat content, absence of sediment or
visible dirt, and low bacterial count may be used to encourage de-
livery of highest quality. The written contracts entered into by
the organization and its producers may specify the temperature to
be maintained and time of delivery, as well as the time, frequency,
and basis of payment.

The consuming public is coming more. and more to appreciate
high quality in dairy products and is demanding it. Poor quality
is frequently the cause of loss of patronage and failure of milk-dis-
tributing plants. High quality is the first essential in obtaining and
maintaining patronage. It begins at the farm and must not be neg-
lected either there or at any point between the producer and con-
sumer. Good quality and good service are essential to obtaining an
increased business.

In cooperative milk-distributing plants the problem of determining
upon a satisfactory price agreement with the producer should not
be difficult, since price policies are largely determined by the board
of directors in conference with or as representatives of the patron
members. Furthermore, an agreed margin between producer and
consumer prices may be established and any surplus arising may be
distributed back to the producers on a pro rata basis, or, what is per-
haps better, the plant may be operated on a net-return basis.

Although at some producers’ cooperative milk-distributing plants
the practice of purchasing the milk from the producer at a stipulated
price is followed, the plan of prorating the proceeds for certain
periods to the patrons in accordance with raw materials furnished,
after deducting necessary charges for operating expenses and re-
serve, is to be preferred. The producer who realizes that he is a part
of an institution which is truly cooperative should be in hearty ac-
cord with this method. Ifthe milk is purchased outright at a definite
price, the margin between this price and that charged the consumer
on account of unforeseen conditions may not be sufficient to provide
for the expense of operation. It is impossible at times to foretell
how much of the milk delivered during any month will be required
for the whole-milk trade and how much must be manufactured into
by-products. While an organization that purchases the milk from
108510°—22—_4

22 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE. °

the producer might suffer a loss under such circumstances, the pro-
ducer would not be a gainer, because, being a part of the organization,
he would have to bear his part of the loss eventually.

The advantages of the truly cooperative method of payment, that is,
prorating the net proceeds in accordance with raw materials
furnished, should be carefully considered, for under this method
questions of surplus milk may be adjusted without difficulty: Further-
more, the prorating of net proceeds has been employed successfully
by many other cooperative organizations, such as cooperative cream-
eries and cooperative fruit and vegetable marketing organizations,
and should be equally satisfactory when used in cooperative milk-
‘distributing plants.

EFFICIENT AND ECONOMICAL PLANT OPERATION.

Internal economy in plant operation is a detail feature of business
management largely dependent upon the systematic organization,
ability, and ideals of the employees, the arrangement and construc-
tion of the plant, and the arrangement, capacity, and efficiency of the
equipment. The importance of proper plant construction and equip-
ment has been previously discussed and should not be overlooked
in the construction and equipment of new plants or the remodeling
and equipment of old ones.

Systematic plant organization, with competent, able, and willing
employees, is an important factor in obtaining efficient and economical
plant operation. Every part of the work should be properly coordi-
nated, to the end that needless waste of supplies and labor may be
eliminated. Plants of sufficient size to warrant the employment of a
plant foreman or superintendent should have one. The duties of a
plant foreman or superintendent are largely supervisory, directing
the employees in the plant in the proper performance of their duties,
whether it be in weighing, testing, or inspecting the supplies received,
pasturizing and bottling the milk and cream, and washing and steri-
lizing the bottles, vats, or plant equipment. In plants where a plant
engineer is not regularly employed, he supervises the proper operation
of the boiler, engine, motors, and refrigerating equipment, and

whatever detail work is done in the holding of products in the re- —

frigerator or cold-storage room for delivery on routes, or in the
manufacture of by-products. It is obvious that competent supervi-
sion with systematic organization and high ideals are essential for
the most efficient and economical operation of a milk plant.

SALES POLICIES AND METHODS OF DISTRIBUTION.

Local market conditions must be the chief deciding factor in de-
termining the sales policies and methods of distribution in a milk-
distributing plant. Quality, however, should be the first considera-

a ie a Sle = —5

COOPERATIVE MILK-DISTRIBUTING PLANTS. 23

tion in the sales policies. A deep cream line on bottled milk and the
thickness or viscosity of bottled cream are important factors in de-
veloping new business. A deep, distinct cream line often outweighs
all other considerations with consumers, since to them it is a visible
and tangible evidence of quality and a daily indication of the business
standards of the company. It therefore is important not to diminish
the cream line on the bottled milk by the adoption of a low butter-fat
standard or by the selection of poor pasteurizing equipment or by
improper processing methods.

In establishing a new plant it is important that outlets of sale be
developed and methods of distribution be determined before delivery
equipment is purchased or contracts for large supplies of milk are
made. In this matter it is well to proceed carefully and cautiously,
for if complete equipment for an extensive system of retail distribu-
tion be purchased and it is later found advisable to employ largely a
wholesale system through retail stores, not only will much of the
equipment be unnecessary, but it will nee be suitable for wholesale
delivery. A thorough canvass of the market situation should be
made, including the trade demands and requirements, and when
profitable outlets are doubtful the establishment of the plant should
be postponed until they are assured.

A nucleus for retail and wholesale business may be secured by
consolidation of routes discontinued by the patron members or by
the purchase of the business and good will of independent dealers.
The initial operation of a milk-distributing plant is usually the most
critical period in its existence, and failure to solve the problem of
sales organization and methods may result in insolvency unless
adequate capital has been provided to carry the organization along
until sufficient sales business has been developed to cover the heavy
overhead costs and make possible the development of a profitable
business.

The channels of distribution may be classified as follows:

(1) Direct to consumer by house-to-house delivery.

(2) To consumers through retail stores.

(3) To consumers through hotels, cafés, refreshment stands, etc.

(4) To other dealers who may employ the previously mentioned
channels.

The direct-to-consumer channel of distribution by house-to-house
delivery is most expensive, although a larger cash return is obtained,
as higher prices are charged, and usually a larger permanent business
may be obtained, since a satisfied customer ey, be made a permanent
one. Then, too, delivery direct to consumers’ doors eliminates cer-
tain meee tion which may result from sales to retail stores. Direct-
to-consumer delivery has certain obvious advantages, and where the

24 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

retail-route organization may be perfected to the point of permitting
large loads (350 to 450 quarts) the overhead costs may be. reduced
to a minimum.

Distribution through retail stores is a channel employed wholly
or in part by milk-distributing plants in many cities. Its advantages
are lower costs of delivery expense and usually lower prices to con-
sumers, especially at cash-and-carry stores. Its disadvantages con-
sist of increased competition in selling, and the inconvenience, time,
and effort required by consumers to obtain their daily supplies.

Hotels, restaurants, cafés, and refreshment stands ordinarily buy
both bulk and bottled goods at wholesale prices, which range lower
than retail prices. ;

Sales to other dealers, who operate either or both retail and whole-
sale routes, is a method of distribution employed by some milk plants.
Such sales are at wholesale and may be made to independent dealers.

Economy in retail-route distribution is dependent upon reduction
of route mileage and increase in size of load handled by each route
man and upon the extent that the sales organization is able to obtain
greater efficiency. Endless duplication of equipment, excessive over-
head expense, and needless street travel by many route men of com-
peting distributing plants have been pointed out as a great waste in
milk distribution. This could be eliminated by a centralized system
of distribution, with one plant handling the city’s entire supply.

The average load carried on retail routes averages usually from
250 to 300 quarts per day, while in exceptional cases as many as
350 to 400 quarts are delivered from one retail wagon. However, it
is entirely possible for one route man, serving all customers on both
sides of the street in closely settled sections of cities, to average 400
or more quarts daily.

An efficient delivery system is just as important to the success of
a milk plant as is the quality of its products. Retail routes are
usually operated by a delivery man using a one-horse retail wagon
or a light motor truck. A retail delivery man, under ordinary con-
ditions, is able to supply 200 to 400 customers a day. Four to 10
routes are generally supervised by a route foreman, and in large com~-
panies a sales manager supervises the work of the foremen. Credit
men, solicitors, collectors, loaders, and checkers are employed in some
delivery organizations.

In larger milk plants, operating five or more routes, it is commonly
advisable to place the delivery system under the supervision of a
sales manager, with route foremen in charge of a number of routes,
say from 5 to 10. The sales manager supervises the route foremen
and such additional employees as solicitors and collectors, while the
plant superintendent supervises the loaders and checkers.

COOPERATIVE MILK-DISTRIBUTING PLANTS. 25

In small plants the general manager assumes the responsibility
of the sales manager and depends upon the plant superintendent to
supervise the loaders and checkers and the route foremen or route
men for the proper delivery service.

In the larger plants wholesale milk is generally sold on routes that
handle wholesale orders exclusively, and retail milk is distributed on
exclusively retail routes. Although both the wholesale and retail
routes may cover the same territory, separate deliveries are made,
because a different kind of service and different hours of delivery are
required by wholesale and retail trade. The separation of wholesale
and retail sales also simplifies accounting, balancing of load sheets,
and the checking of returned bottles and cans. In smaller plants the
routes usually handle both wholesale and retail milk on the same
wagons. .

In cities located in the northern part of the country daylight deliv-
eries are made throughout the spring, fall, and winter seasons, and
in the summer deliveries are usually made before daylight. Where
one company handles practically all the city distribution, it may be
possible to maintain a system of daylight delivery throughout the
year. In some southern cities it is customary for milk dealers to
make two deliveries a day.

ROUTE SALESMEN AND DELIVERYMEN.

The success of any mercantile business depends upon its ability to
sell goods. The successful sale of milk through milk plants depends
upon the efficiency of its sales methods. After the general sales pol-
icy of a milk plant is approved by the board of directors the manager
must determine the methods to be employed in putting it into opera-
tion, while the actual selling is intrusted to the sales and delivery
organization. .

The route men of a modern milk company are more than delivery
men. They are, in fact, business representatives who by their rela-
tions to the customers, by their speech, and by their personal appear-
ance express the general attitude of the company toward the public
in business standards and business ideals. Good will may be either
developed or destroyed by the employment of the right or wrong
kind of route salesmen.

Route salesmen and delivery men may come from many different
sources. They may vary in age from 18 to 45 years, may be inex-
perienced, with great or small capacity for self-development; or
they may, on the other hand, be experienced and efficient milk
salesmen.

Ability to read and write, keep a route book and daily report sheet
correctly, understand the instructions given, and appreciate the im-

26 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

portance of personal cleanliness are qualifications that should be
required. With such qualifications and a good physique as a foun-
dation the possibility of future development into a successful sales-
man is mainly a problem of organization of the delivery system. A
company that does not have a well-formulated standard of service or
that neglects to train its route men is more than likely to have just
as many different standards of service as it has route men.

The pay of a route salesman must be commensurate with the
amount and kind of work required of him. As a general rule the
salary of a salesman should compare favorably with the pay of a
skilled workman or mechanic. A route salesman who sells 400
quarts daily and makes an effort to build up his route is rendering a
service of a higher order than a driver or teamster, and unless he
is adequately paid he will eventually seek other employment. The
salaries of efficient milk salesmen vary from $25 to $50 per week.
A constantly changing personnel of dissatisfied route salesmen pre-
cludes efficiency in satisfactory delivery service. The premium or
commission system of payment, in which a bonus is offered to sales-
men for new customers obtained and for promptness in the collection
and return of bottles in addition to basic salary, is the usual method
of paying salesmen for efficient service and encouraging them to put
forth their best efforts.

Because of the many disagreeable features of route-delivery work
there is a tendency among route men to look upon the work as a tem-
porary job until more agreeable employment is obtained. This tend-
ency is often further encouraged by the indifferent attitude of the
company toward the route men. Even companies which maintain a
most liberal policy toward their salesmen and pay adequate salaries
report that only about 50 per cent of their route force can be consid-
ered permanent.

Adequate salaries, liberal commissions, and a bonus system of pay-
ment, convenient working equipment, and a reasonable amount of
time off each month are strong inducements to route salesmen to put
forth their best efforts and to continue permanently in delivery work.

Because the net profit on a bottle of milk is usually a small frac-
tion of its selling price, the reduction of credit losses to a minimum
is of more importance than in most other lines of business. The
advantages and disadvantages of various credit systems, and especi-
ally their adaptability to local conditions, should be investigated
before any one of them is adopted.

The choice of a cash or credit system, or a modified form of such,
will depend upon competitive conditions, prevailing trade practices,
and the management of an effective sales organization and distribut-
ing system. Reasons for and against may be given for each, but, im
general, cash systems have been found to be most economical of op-

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COOPERATIVE MILK-DISTRIBUTING PLANTS. 27

eration and losses due to extension of credit are eliminated. The
two prevailing systems are: (1) Cash (in advance from retail trade,
in which payment for coupon books or tickets is made before the
milk is delivered, or on delivery from wholesale trade); and (2)
charge accounts, where collections are made weekly, semimonthly, or
monthly.

The principal advantages of the cash system are, first, the elimina-
tion of uncollectable accounts; second, the elimination of the expense
of billing and collecting; third, the reduction of bottle losses. Its
disadvantages are the first cost of tickets and the annoyance to
patrons in giving the deliveryman the proper tickets at the time of
delivery.

The advantages of the charge system are: First, patrons are not in-
convenienced by the use of tickets; second, delivery work is facili-
tated, because the deliveryman is not obliged to collect or check up
the tickets; third, it is a convenient method of extending credit. The
disadvantages of the charge system are: First, the expense of book-
keeping; second, the loss of bad accounts; third, the higher and more
expensive order of salesmanship required on the part of the delivery-
man for billing and collecting than in either the cash or cash-in-ad-
vance system; fourth, necessity for the service of extra collectors and
credit men.

METHODS OF INCREASING SALES.

In new, as well as in old-established plants, it is necessary to be al-
ways on the alert for new business. Customers are continually leav-
ing the city or moving to other parts of it and new residents are
constantly moving in. Various advertising methods may he em-

_ ployed, the attending success depending upon the care with which

they are planned and their timely application. The most effective ad-
vertising is of the positive sort or that which emphasizes the health-
fulness and food value of milk. Such advertising may be in the form
of newspaper articles, billboards, posters, circulars to patrons, and
display advertising.

Many milk-distributing plants have offered incentives to their sales
force in increasing and extending trade by paying additional com-
missions or bonuses for new customers, returned bottles, volume of
business, collections, or total route sales, as part of the routeman’s
salary. Some firms employ the policy of consistently extending their
business by consolidation with or purchase of the business of com-
petitors. Where the competitor’s customers are mostly within terri-
tory already covered and can be reached by existing routes, or are
in new territory and a nucleus of a route is desired to which other

28 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

customers may be added, this method may be profitable, provided the
price paid is not exorbitant. Soliciting may be employed where the
house-to-house canvassing seems desirable.

COSTS OF MILK DISTRIBUTION.

The costs of milk distribution are dependent upon capital invest-
ments in plant and equipment, delivery equipment, and operating ex-
penses both in the plant and in delivery.

Data obtained by careful investigations show that capital invest-
ments in plant and equipment range from about $20,000 to $150,000,
with an appropriate average of $60,000 for plants handling %,000
to 5,000 gallons daily. The investment in delivery equipment varies ac-
cording to the amount of wholesale or retail business and the amount
handled on each distributing wagon. It is apparent that when retail
wagons cost $200 to $300 each and wholesale wagons $350 to $450
each, and horses $150 to $225 each, and when from 250 to 400 quarts
are handled daily on retail wagons and 1,200 to 1,800 quarts on whole-
sale wagons, the investment on retail wagons may range from $1.25
to $1.75 per quart sold daily and on wholesale wagons from 50 to 75
cents per quart.

Labor costs on retail and wholesale routes vary in different cities
and may range on retail routes from 13 to 24 cents per quart, with
additional costs for horse feed amounting to $1 or more per day
or one-fourth to one-third cent per quart. The delivery costs under
different local conditions may range from 40 to 65 per cent of the
total costs from producer to consumer, which “spread” or margin
may range from 4 cents per quart to 6 or 7 cents, and in some in-
stances to 8 cents per quart. ‘

It is impossible to give an average figure which would fairly repre-
sent prevailing conditions, for the costs of labor, supplies, and equip-
ment are constantly changing, and conditions are not the same in
any two cities. The spread on wholesale sales may vary from 1 to 3
cents less per quart than on retail sales. Thus, with a margin of
3 cents less, and with the assumption that the retail store handles on
a 1-cent margin, it is possible for milk to be sold to consumers through
stores at 1 to 2 cents less per quart than on retail routes, making
house-to-house deliveries.

Jt should be remembered that under any system of plant operation
and sales delivery, costs are largely dependent upon local conditions,
the extent to which the business is efficiently managed, and whether
detail operations are conducted in an economical manner. Perhaps no
one thing is more important for proper management and maintenance
of low operating costs than a system of accounts and cost records

COOPERATIVE MILK-DISTRIBUTING PLANTS. 29

which quickly enables the various phases of the business to be ana-
lyzed and comparisons to be made, thus giving the best opportunities
for policies to be formulated for the greater success of the business.

NECESSITY FOR ADEQUATE ACCOUNTING SYSTEM.

Among the important causes of many business failures in recent
years, according to our large commercial reporting agencies, has been
a lack of accurate and detailed information concerning the business.
Inasmuch as the only reliable source of information concerning busi-
ness operations is the records kept of them, it would seem that the
importance of proper records as an aid to successful management is
deserving of more consideration than is ordinarily given the subject.
The importance is further emphasized by the statement of a certain
national trade association that 85 per cent of the failures in business
are due to inadequate bookkeeping. It is the unanimous opinion of
those who have made a study of the subject that a very decided im-
provement must be made in bookkeeping methods before any appre-
ciable decrease can be expected in the present heavy business mor-
tality rate.

In cooperative organizations it is just as essential that adequate
and proper accounting records be kept as it is in private and cor-
porate enterprises. Aside from the question of success or failure
there are other benefits which may be derived from adequate account-
ing. Uniformity in the manner in which financial and operating re-
ports are compiled is of great importance. The true progress of a
business can be judged only by comparing the results of one year with
those of preceding years. Therefore, if it is desired to know the
progress that has been made, the reports must be comparable. The
reports are not comparable and can not be made so unless the records
have been kept on the same bases year by year and all the facts have
been recorded. Unless the system is truly adequate, some of these
facts are sure to be omitted and thus the entire report rendered worth-
less. : %

The preparation of proper income-tax reports, cost statements as
a basis for selling prices, wage scales, and the whole operation of the
business depend upon information which can be secured only by the
use of an adequate system of accounting.

But first it should be determined for a certainty that the system
is really adequate. A small number of forms, requiring little work
to keep them and purchased at a small initial cost, by no means con-
stitutes an adequate system of accounting. Any system is worthless

if it does not supply the information needed to conduct the business

properly.

30 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.
ESSENTIALS OF AN ADEQUATE ACCOUNTING SYSTEM.

The items of information that an adequate system of accounting
may furnish are many, but a few of the more important ones will be
mentioned.

One important item is the information as to whether the business
as a whole has been conducted at a profit or at a loss. This, of course,
- the books must reveal; but they should reveal much more than the
mere fact that a profit or loss has resulted from the operation. They
should show which particular part of the operation has been con-
ducted at a profit and which has resulted in a loss. Further, 1t should
be readily seen what particular item of expense or income has had the
largest part in accomplishing the result. In order that this may. be
thoroughly understood, it is necessary to know the exact effect of this
item in previous years. This makes it imperative that the statement
be prepared on a comparative basis and in a way that will allow each
item to be shown side by side with the same item of previous periods.

Another point of information is the balance sheet or statement of
the financial condition. This is often thought to be of less im-
portance than the statement of profits. Actually, however, it is of
equal if not greater importance, and can reveal an almost untold
amount of information when properly prepared and studied. Like
the profit-and-loss statement, to be of real value, it must present
the financial progress that has been made in addition to the exact
financial condition at a certain date. A statement of this kind is
fast becoming a necessary part of the information required by many
banks in passing upon an application for a loan, and one must be
submitted to the Treasury Department as a part of the income-
tax report. It should be prepared in the form recommended: by
the Federal reserve bank, and the accounting system should be so
constituted.

In order that two items may be compared, they must be alike.
Tt is impossible to compare items on the financial report at different
dates unless they are alike. It means nothing to compare the
amount expended for repairs this year with that of last year, unless
it.is known that exactly the same kind of items have been charged
to the open account each year. It is imperative, therefore, that
the same ledger accounts be kept in exactly the same manner over
a period of years if any reliance is to be placed on the reports.
Often it is desirable to compare the results obtained by another
organization in the same line of business. This is impossible unless
the two organizations use a uniform and standard. classification
of ledger accounts. These accounts should be so arranged in the
ledger that the statement just referred to can almost be prepared

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by copying onto a form the balances of the accounts in the order
in which they appear in the ledger.

ESSENTIAL RECORDS FOR AN ADEQUATE ACCOUNTING
SYSTEM.

The necessary records comprising an adequate system for milk-
distributing plants may be classified briefly into:

1. Receiving records. 6. Accounts receivable records.
2. Purchase records. 7. Pay roll.

3. Driver’s records. §. Storeroom records.

4, Sales records. 9. The journal and ledger.

5. Receipts and disbursements records. 10. Statistical records.

The number of forms required for the keeping of these cords
depends to a large extent upon the volume and complexity of the
business. Plants operating in the large cities, receiving their milk
supply by rail from receiving stations located at distant points,
and operating many routes, milk depots, and retail stores in the
city, require a much more detailed system of records and accounts
than is required in small plants receiving their milk supply direct
from the producers.

As it is not practicable to treat the subject exhaustively in a pub-
lication of this nature only the essential information required from
each class of records will be described.

THE RECEIVING RECORDS.

The receiving records should show the quantity and value of the ,
milk received, deductions from this amount for any reason, such as
advances, and the amount actually paid to each producer, as well as
the total value and quantity of deliveries, deductions, and payments.

When milk is brought to the plant it should be weighed at the
receiving platform and each producer given a receipt for the quan-
tity delivered. The duplicates of these receipts should be sent to the
office and entered on milk pay-roll sheets. At the end of the payment
period calculation should be made of the quantity delivered by the
various producers. The unit price should then be entered and ex-
tension made of the gross amount due the various producers. From
these amounts deductions should be made for advances or other pur-
poses and the net amount of the check shown. When the day for
payment arrives checks should be drawn for the various amounts
and their numbers entered in a proper space on the milk pay-roll
sheet. "The total of these payments should be entered in the check
register, the pay roll serving to show the detail necessary for proper
reconcilement of the bank account.

32 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.
PURCHASE’ RECORDS.

The purchase records should contain a complete history of every
purchase (other than milk or cream) made by the organization.
These purchase records should include a purchase requisition, a
purchase voucher, a voucher register, and a voucher index.

Before any purchase is made a requisition should be issued and
approved by the manager or other officer in charge of purchases in
order that no unnecessary goods may be bought. This order should be
issued in duplicate, the original mailed to the supply firm and the
duplicate placed in an unfilled order file until the goods are received.
When the invoice is received the duplicate purchase requisition should
be removed from the file, attached to the invoice, and returned to the
file. When the goods are received the invoice should be taken from
the file, checked with the goods and with the duplicate of the purchase
requisition, and entered in a purchase voucher. It is often helpful
to have a record on the duplicate purchase requisition of the quantity
on hand, monthly consumption, and last quotation. A purchase
voucher, which forms a filing jacket in which the requisition and
invoices are placed for filing, should be filled out and the invoice
noted thereon; it is then assigned a number and filed until the end of
the month. But one voucher is made for a single concern for any
given month; hence a purchase voucher may contain several invoices.
Vouchers should be filed in numerical order.

In order that any invoice may be easily located an alphabetical
index should be kept on 3 by 5 cards. This index should contain a
_ card for each company from whom purchases have been made at any
time. All numbers assigned to purchase vouchers of an individual
concern should appear chronologically on the index card showing the
company’s name.

At the end of the month all purchase vouchers for the month should
be taken from file and completed by entering in the space provided
the total amount of invoices included in such voucher, and the allo-
cations to the proper ledger account should be made. ‘The vouchers
then should be entered consecutively in the voucher register to the
credit accounts payable, charges being made as indicated on the
voucher, after which these should be filed in numerical order accord-
ing to the number previously assigned.

The voucher register contains a record of the purchase vouchers.
It should be provided with a number of columns, so that items of
frequent occurrence may be collected, thus decreasing the amount
of work required in posting.

A memorandum column should be provided on the left- hand side

for entering the number and amount of checks given in payment as
vouchers. No detail accounts payable need be kept, as the voucher
and voucher record afford a convenient record of all such items.

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COOPERATIVE MILK-DISTRIBUTING PLANTS. 83
= - DRIVER’S. RECORDS.

The product taken out by a driver should be checked out to him
on a load sheet by the checker. This load sheet should be retained
by the checker until the driver returns, the returned goods and empty —
containers should be noted thereon, and the net sales determined.

The driver should then fill out a sales report showing the quantity
and value of each item sold, the amount of cash and tickets collected,
the detail of all other transactions, and should present it, together
with his copy of the load sheet, to the cashier as a basis for his daily
settlement. In making this settlement the cashier must check the
load requisition sheet with the sales report as to quantity of sales,
the sales report with the cash turned in as to cash sales and collec-
tions, and collect the proper amount from the driver.

The ticket sales should be handled in the same manner as other
sales by providing a place for “tickets out” and “ tickets in” on the
driver’s load sheet and for “tickets sold” and “tickets collected ”
on the driver’s sales report. The driver’s sales report, after being
checked, is passed to the bookkeeper for entry in the sales book.
The counter clerk and special delivery driver should be required to
make out a daily requisition and sales report.

THE SALES RECORD.

The sales record should furnish a complete detailed analysis of all
sales.

A sales sheet should ne made out for each salesman and the sales
as shown on the sales report entered on this sheet. At the end of the
period all sales sheets should be footed and balanced and the several
footings recapitulated, giving the total sales for the period. The
retail and wholesale sales should be kept separate.

RECEIPTS AND DISBURSEMENTS.

All money should be received by the cashier, who should issue a
receipt for each payment, retaining a duplicate in the office. The
cash-receipts book is a register of all cash received and must be
written up from the duplicates of the cashier’s receipts. All money
received should be deposited in the bank daily. The cash-receipts
book should be so arranged that the ae can be shown to agree
with the bank deposit.

- All disbursements should be made by tee which should be
eletods in the check register. The manager should give the neces-
sary instruction when any payment is to be made. Checks should

1 This refers solely to a cash system of sales. In case a credit system is in use, addi-

tional safeguards should be established to insure proper accounting for all sales and
collections,

34 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

be registered when issued and the totals of the check register will
be the total disbursements for the period.

ACCOUNTS RECEIVABLE RECORD.

Where a credit business is conducted an abnormally high percent-
age of loss from bad accounts is frequently experienced. It often
happens that a company has credit customers whose names do not
appear on the route book, the number of the house being the only
record. In allowing credit the driver should never fail to take the
customer’s name in order that he may be traced in case of moving
from one address to another, and his credit standing in the com-
“munity may be ascertained. Many losses occur through the failure
of drivers to follow up collection programs and a neglect of the
company to check outstanding accounts properly.

One of the most important features of an accounting system for
milk plants is the method used in controlling route charges and
collections. Great care should be exercised in checking the receipts
on account and the charges shown on the driver’s route book and in
keeping the amount shown in agreement with the controlling ac-
count. Sound business practice demands that milk accounts should
not be allowed to stand on the books uncollected for a period of

more than 30 days.
PAY ROLL.

A time book or pay roll should be kept at.all times, showing for
each employee the time worked, rate of pay, and amount due. At
the end of the month the total amount due for wages and salary
should be charged to the proper expense account and credited to the
pay-roll account, whether or not these amounts have been paid.

Checks given in payment for labor or salary and advance pay-
ments on them should be charged to the pay-roll account. By fol-
lowing this method expense accounts will always show correct
charges regardless of the time of payment, and any credit found
in the pay-roll account at the end of the month will represent an
accrued liability on account of unpaid wages and salary.

STOREROOM.

Too much emphasis can not be placed on the matter of handling
supplies and equipment purchased by a company for sale or for
future use. ‘This property should be safeguarded no less carefully
than should’ cash. Frequently this is not done, and the loss oc-
curring through this neglect is a serious factor in the failure which
often follows. Therefore, a very thorough system of accounting for
supplies placed in and withdrawn from the storeroom should be
kept.

COOPERATIVE MILK-DISTRIBUTING PLANTS. 3D

All supples purchased for future use should be kept in the store-
room and charged to the storeroom account. These supplies should
be recorded on an inventory sheet. As supplies are required for use
a storeroom requisition should be made by the employee needing
these supplies, such requisition showing the quantity, size, and
other information necessary to identify, the supplies desired. The
requisition must be approved by the factory foreman or manager
and presented to the storeroom keeper, who will deliver the mate-
rial to the employee. The storekeeper should then fill in the price
and at intervals record the requisitions on the inventory sheet. At
the end of the month the value of the material withdrawn from the
storeroom is credited to storeroom accounts and charged to the
various accounts affected by the use of this material.

THE JOURNAL.

_ All the information recorded in the records heretofore described
is classified monthly and made ready for posting into the general
ledger in a book called the journal. This book is all-important, and
is-a connecting link between the original record and the ledger from
which all information is secured to compile financial and operating
reports. All general ledger posting must be made from this book
(the journal) and from no other records.’

THE GENERAL LEDGER.

The ledger is the book of accounts. After the transactions of the
business have been recorded in the journal, the debit and credit items
arising from such transactions are posted (or transferred) to the
proper accounts in the ledger. In this manner all the facts concern-
ing the particular subject are collected under its name and can be
viewed as a whole.

Any system of accounting, to be of maximum value to those who
control the business, must have a very carefully planned and clearly
defined classitication of ledger accounts, and the person charged with
keeping these accounts must adhere rigorously to this classification.

THE STATISTICAL REPORTS.

_ Inasmuch as the entire bookkeeping is carried on for the purpose of
accumulating and presenting information concerning the operation
of the business, too much care and attention can not be given to the
_ preparation of statistical reports, chief among which are the income
and expense statements, and the balance sheets, and the cost sheets.

2J%n large and well-organized milk-distributing plants it is equally satisfactory to make

postings direct from the original records; in the average milk plant, however, this is not
advisable,

36 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

The income and expense statements should show in detail just
which phases of the business are most profitable, the net profit or
loss, and all the facts relative to the operation of the business for
the period, as well as comparison with the previous period. The bal-
ance sheet should reflect the exact financial condition and should
also show comparison with previous periods. ‘The cost reports must
show the unit cost (per quart) of every item of expense and the total

cost per unit.
QUANTITY RECORDS.

Among the most important of all are the records of the quantity
of milk handled through the various processes. Large volume (or
quantity) is an important factor in a milk-distributing business, and
for this reason unit costs must be closely watched. No manager can
form a correct judgment of the efficiency of the operations unless
he has the total quantity to compare with the total cost, and an ac-
counting system arranged to show such information will be the
best. possible tool with which to ward off business failure. )

It would be impossible to put too much emphasis on the importance
of keeping adequate quantity records.

COST OF KEEPING ADEQUATE RECORDS.

A word of warning might be spoken regarding the operation of an

accounting system. It is often looked upon as a necessary evil, the
- expense of which should be reduced in every way possible, and especi-
ally by such methods as the employment of low-salaried, incompetent
bookkeepers, whose only recommendation is too often the small sal-
aries for which their services may be secured. Unquestionably book-
keeping and all office expense should be kept as low as possible, but
any reduction which tends to confuse and distort the information
which a properly operated accounting system can furnish for the
guidance of the management should not be considered for a moment.
Without these important reports, those responsible for the direction
of the affairs of the organization have no information on which to
formulate the policies of management. Under these conditions
proper guidance of the business is an impossibility.
_ A first-class bookkeeper will prove an exceedingly valuable asset;
and after his work is done, to reap the best benefits possible from
an adequate accounting system, nothing can take the place of a regu-
lar independent audit by a reputable firm of public accountants.
The cost may seem excessive, but it will not be when compared with
the benefits derived from it.

os 3 ie 5

APPENDIX.

By-LAwWS oF THE ———— ——— ASSOCIATION.

ARTICLE I.—Name.

Section 1. This association, incorporated under the laws of the State of
——, shall be known as the (———— ———- Association).
Sec. 2. Its principal office shall be located in the town of

ARTICLE II.—O bjects.

Section 1. The objects of this association shall be to encourage better and
More economical methods of production, manufacture, and sale of milk, cream,
butter, cheese, and other dairy products and dairy by-products and to engage
in handling, grading, marketing, standardizing, manufacturing, storing, and
advertising dairy products and dairy by-products.

Sec. 2. In order to carry out these objects the association shall have power—

(a) To purchase, rent, buy, build, or otherwise acquire and own, sell, lease,
or control such buildings and equipment and real and personal property as may
be needed for the convenient conduct of its operations.

(0) To borrow money and to secure the same by a mortgage, deed of trust,
or other form of security upon any of its property, real or personal.

(ce) To cooperate and affiliate, through membership or otherwise, with any
other cooperative association formed for similar purposes in order to carry out
the objects of this association.

Norre.—Make the objects as definite as possible; but it is also well to
make them sufficiently broad in scope to cover any future efforts of the
association. Care should be taken to state the objects, so as to keep the
activities within the limits of the power conferred by the statute under
which the association is incorporated, as well as in harmony with the
articles of association.

ARTICLE II1.—Membership.?

SEction 1. Any bona fide producer of dairy products in the territory served by
this association may become a member of the association by agreeing to comply
with the by-laws of this organization and purchasing at least (one) share of
capital stock.

1 Adapted from Bulletin No, 541 of the U. S. Department of Agriculture entitled
Cooperative Organization By-Laws. All matter appearing in parenthesis is suggestive
merely and is to be altered to suit the best interest of each association. Those who desire
tc form an association which will come within the scope of the Capper-Volstead Act
should remember that such an association (a) must be composed entirely of producers;
(6) must not deal in the products of nonmembers to an amount greater in value than
such as are handled by it for members; and (c) must comply with one or both of the
following requirements: (1) That no member of the association is allowed more than
one yote because of the amount of stock or membership capital he may own therein, or
(2) that the association. does not pay dividends on stock or membership capital in excess
of 8 per centum per annum. Fuller information concerning the Capper-Volstead Act
may be obtained from the Bureau of Agricultural Hconomics, United States Department
of Agriculture.

2The following is applicable to capital-stock organization. On p. 43 suitable sections
for nonstock organizations are suggested.

37

38 BULLETIN 1095, U. 8. DEPARTMENT OF AGRICULTURE.

ARTICLE 1[V.—Fiscal Year—Meetings.

Section 1. The fiscal year of the association shall commence (January 1)
and end on (the 31st of the following December).

Src. 2. The annual meeting of the association shall be held in the town of
-) on the (third Monday in January) of each year, at (10 o’clock

(
a. m.)

Nott.—The annual meeting should be held as soon after the end of the
fiscal year as will allow for the settlement of all accounts, auditing of the
books, and the preparation of the annual reports of the officers.

Sec. 3. Special meetings may be called at any time by the president. He
shall call such meetings whenever (10 per cent) of the members shall so request
in writing.

Src. 4. Notice of the annual meeting shall be mailed by the secretary to each
member at least 10 days previous to the date of the meeting and such notice
shall be published in a local newspaper not less than (10 days) previous to the
date of the meeting. At least (10 days) before the date of any special meeting
the secretary shall mail notice of such meeting to each member, which shall
state the nature of the business to be transacted at such meeting.

ARTICLE V.—Quorum.

Section 1. (One-fourth) of the members in good standing shall constitute a
quorum for the transaction of business at any meeting.
Note.—When the organization is small and compact, the proportion

required for a quorum may be larger than in a large organization which
includes considerable territory.

ARTICLE V1.—Directors and Officers.

Section 1. The board of directors of this association shall consist of (seven)
members. After the adoption of these by-laws, the members shall elect from
among themselves (seven) directors, who shall hold office for the period of one
year or until their successors shall have been elected and qualified and shall
enter upon the discharge of their duties.

Nore.—In scme States the corporation laws stipulate the number of direc-
tors and officers an association shall have. The plan of having each district
represented on the board of directors tends to avoid jealousies between the
various districts, but a small board of capable men is to be preferred to a
large board composed largely of members who can not give proper attention
or time to their duties on the board. In case it should be the wish of the
members to recall a director this can be effected under section 6 of this
article.

Sc. 2. The board of directors shall meet within (10) days after the first elec-
tion and after each annual election, and shall select by ballot a president and
a vice president from among themselves, and a secretary treasurer (or a secre-
tary and a treasurer) who may or may not be a member of the association. The
officers shall hold office for one year or until their successors are duly elected
and qualified.

Note.—In some organizations it is desirable to have some one outside
the membership act as secretary or treasurer. When such is desired proper
provision for it should be made in the by-laws. In some cases, especially
when the board of directors is large, it is desirable to have an executive
committee. Such a committee may consist of the officers and one or more
members of the board of directors.

Sec. 8. Any vacaney in the board of directors shall be filled for the unex-
pired term at a special meeting called for the purpose.

COOPERATIVE MILK-DISTRIBUTING PLANTS. 39

Sec. 4. (Four) members of the board of directors shall constitute a quorum at
any meeting of the board.

Sec. 5. (The compensation, if any, of the board of directors and the officers

shall be determined by the members of the association at a regular or called
meeting of the association. )
F Sec. 6. Any director or officer of the association may be removed from office
.- at any annual or special meeting by a two-thirds vote of the members present
following the mailing of a notice to each member in accordance with these
by-laws specifying that the matter of the removal of such director or officer is
to be voted upon at such meeting. Such director or officer shall be informed
in writing of the charges against him at least (10) days before such meeting,
and at such meeting shall have an opportunity to be heard in person, by counsel,
and by witnesses.

ARTICLE VII.—Duties of the Directors.

_ Section 1. The board of directors shall be responsible for the proper conduct
of the business affairs of the association and shall make any necessary rules
and regulations, not inconsistent with law or with these by-laws, for the manage-
ment of the business and the guidance of the officers, employees, and agents of
the association.

Sec. 2. The board of directors shall have the power to establish rules and
regulations regarding the inspection and grading of the products handled by the
association.

Src. 3. All brands, labels, trade-marks, and the like, established by the asso-

by ciation, shall be registered and become its property, and they shall be attached
only to such grades as shall be designated by the board of directors.’
i Src. 4. The board of directors may employ a business manager, fix his com-
pensation, and dismiss him for cause. He shall conduct the business of the
association in accordance with a policy agreed upon and approved by the board
of directors.

Sec. 5. The board of directors shall require the treasurer and all other officers,
agents, and employees responsible for the custody of its funds or property to
. give bond with sufficient surety for the faithful performance of their official
duties, the cost of which shall be paid by the association.

: Sec. 6. The board of directors shall meet on the (first Saturday) of each

month at the office of the association in the town of ( ). Special

meetings of the board shall be held upon call of the president or upon written
_ request of (three) members of the board.

ARTICLE VIII.—Duties of the Officers.

Section 1. The president shall—

; (a) Preside over all meetings of the association and of the board of di-
rectors.

‘« (0) Sign as president, with the (secretary-treasurer) all checks, notes, deeds,
and other instruments on behalf of the association.

(¢) Call special meetings of the association and of the board of directors and
— perform all acts and duties usually required of an executive and presiding officer.
E Sec. 2. In the absence or disability of the president, the vice president shall
perform the duties of the president.

- *The rules for grading and inspection will necessarily depend on the organization
and the kind of business oa in and this should be kept in mind when drawing up
g ee ane

40 BULLETIN 1095, U. S. DEPARTMENT: OF AGRICULTURE.

Sec. 3. The (secretary-treasurer) shall—

(a) Keep a complete record cf all meetings of the association and of the
board of directors.

(b) Sign as (secretary-treasurer), with the president, all checks, notes, deca:
and other instruments on behalf of the association, previously approved by the
business manager.

(c) Serve all notices required by law and by these by-laws.

(d) Receive and disburse all funds and be the custodian of all property of
this association.

(e) Keep a complete record of all business of the association and make a full
report of all matters and business pertaining to his office to the board of di-
rectors monthly and to the members at their annual meeting and make all re-
ports required by law.

(f) Perform such other duties as may pe required of him be the business
manager, the board of directors, and the association.

Notr.—When the offices of secretary and treasurer are separate the duties
of each should be given in different sections.

ARTICLE [X.—Duties and Powers of the Business Manager.

Section 1. Under the direction of the board of directors, the business manager
shall employ and discharge all employees, agents, and laborers. He shall gener-
ally supervise the production, handling, manufacture, and marketing of the
dairy products and dairy by-products of the association, to the end that the
business of the association may be conducted in the most economical and efficient
manner.

Nots.—The manager occupies a highly important position and his power
must be limited as little as possible. The success or failure of the associa-
tion rests to a large degree with him. He can not be held responsible if
he is to be dictated to at will by each member or if the officers are to meddle
constantly with his work. This does not mean that the manager should not
be subject to the orders of the board of directors. He should take sugges-
tions from the officers and members and from them and his own experience
formulate a business plan. Whenever a manager loses the confidence of
the members he should be replaced.

ARTICLE X.—Oapital Stock.

Src. 1. The capital stock of this association shall be dollars, divided
into shares of dollars each.

Sec. 2. Hach member shall subscribe for one share of capital stock for each
of to be delivered by him to the association. Such shares shall
be paid for in cash, or deductions may be made and applied to the payment of
the shares from amounts due him by the association for products delivered and
sold by it. The amount of such deductions shall be fixed by the board of direc-
tors. Shares shall not be issued until paid for in full.

Sec. 3. Whenever any stockholder desires to sell his stock he shall first offer
it to the association for purchase by it or by a person or persons designated by
the board of directors of the association at a price to be conclusively determined
by the board of directors. In the event the stock is not purchased by the associa-
tion or by a person or persons designated as aforesaid, within 30 days after the
receipt of a written notice by the association offering the stock for sale, then the
stockholder may sell the stock to any person engaged in the production of dairy
products. This restriction on the transfer of stock shall be printed on every.
certificate of stock. :

4These sections are applicable to capital-stock organizations. On p. 43 suitable sec-
tions for nonstock organizations are suggested.

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COOPERATIVE MILK-DISTRIBUTING PLANTS. . 4]

Sec. 4. If any member shall by purchase or by operation of law come into pos-
session of more than shares of the capital stock of this association, the
board of directors may elect to purchase, and such member shall then sell to the
association, such excess shares at a price to be conclusively determined by the
board of directors, plus any dividends or refunds due and unpaid. Also, in the
event of the death or disability of the owner of any shares of stock in this
association, such shares of stock may be purchased by the association and shall,
in the event the board of directors elects to purchase them, be sold by such
owner or his legal representatives to the association at a price to be conclusively
determined by the board of directors, plus any dividends or refunds due and
unpaid.

Norrt.—The legal effect of sections 2, 3, and 4, above, depend entirely upon
the charter provisions and the laws of the State in which the association is
incorporated. They are suggested here as possible means of safeguarding
cooperative principles, and are to be incorporated into or excluded from the
by-laws upon the advice of competent legal counsel. Printing these restric-
tions upon the body of the stock certificate is a convenient and effective
method of giving notice of such restrictions to intending purchasers.

If the organization desires to have both common and preferred stock,
proper provision for such should be made in this article.

ARTICLE XI.—Contracts and Agreements.

SecTion 1. Every producer delivering milk or dairy products to this associa-
tion shall enter into a contract with the association in the form required by the
board of directors, containing, among others, the following provisions:

(a) That the member, by said contract, appoints the ( Associa-
tion) his sales agent to sell all dairy products and dairy by-products produced
by him for sale or such part thereof as shall be specified in the contract, and
binds himself to deliver such products to the ( Association) for
sale at such time and place as the association directs.

(6) That said contract shall run continuously unless canceled by the member
on the of any year by surrendering his contract and giving written notice
to the association at least 30 days prior to said date of his desire to cancel the
contract. Such cancellation shall be subject to any indebtedness due from the
member to the association.

Nore.—No cooperative association should attempt to do business without
first having made a definite contract with each producer. Such contracts
tend to give stability and permanence to the organization and enable the
manger to plan more definitely for the handling and sale of the products
received.

ARTICLE XII.—Duties and Rights of Members.

SEcTIOoN 1. A member Shall have the right to give away or retain for his
use in his household or on his farm‘such of his dairy products as he may wish,
but he shall not Sell any products contracted to the association to an outside
party, except products offered to and rejected by the association.

Src. 2. In case any member is offered a price in excess of the price obtainable

. by the association, said member shall refer said bid to the association.

Sec. 8. On or before — day of - of each year each milk producer
shall report to the association the number of cows which he has in his herd
and the approximate amount of dairy products which he expects to market
monthly through the association during the ensuing year.

Src. 4. Each stockholder of the association shall have only one vote. Voting

by proxy shall not be permitted. Members may vote by mail on specific ques-

42, BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

tions in those instances where authorized to do so by the board of directors.
In such cases the secretary shall mail notices of such specific questions to
each member (10) days before the date of the meeting. Members voting by
mail on specific questions shall transmit their ballots to the secretary of the
association by registered mail and such ballots shall be counted only in the
meeting at the time at which such vote is taken.

Norre.—In a stock company, organized to earn profits on the money in-
vested in the business, voting rights are granted to the stockholders in pro-
portion to the number of shares held. In a cooperative association where
the individual members have common interests, equality is obtained by
limiting each member to one vote. The practice of allowing members to
collect the proxies of absent members and vote the same tends to give
such members undue influence in the affairs of the association.

Src. 5. Any member having a grievance or complaint against the association
may appeal to the board of directors, or to the members, at any regular or
called meeting.

ArticteE XIIl.—Hxpenses and Payments.

Section 1. The expenses of operating and maintaining this association shall
be met by a percentage deduction from the returns for products sold, the amount
of such percentage to be fixed by the board of directors.

Src. 2. The returns from the sale of all products of the same grade shall
be pooled and final payments made to producers on the basis of the average
price received during such periods as the board of directors from time to
time may determine. Advance or partial payments for such products shall be
made to the producers as the board of directors may determine.

ARTICLE XIV.—Refunds and Damages.®

Section 1. After payment to the producers of a specified portion of the amount
received for their product, and after the season’s expenses are paid and a suit-
able sum, to be determined by the board of directors, set aside for depreciation
and reserves, the balance shall be divided as follows:

(a) The stockholders shall receive not to exceed (6) per cent per annum on
the par value of their stock.

(b) The remainder, if any, shall be divided among the patrons of the asso-
ciation in proportion to the value of the products handled for all such patrons
whether members or nonmembers.

Suc. 2. Any member who fails to live up to his agreement or fails or refuses
to deliver his products to the association for sale in accordance with said agree-
ment shall pay to the association as liquidated damages the sum of for
each of not delivered by him to compensate the association for
the loss sustained by the breach, and to enable it to meet and equitably dis-
tribute overhead and maintenance expenses involved in the operation of the
association and in providing and maintaining facilities for the handling and
marketing of the products of its members; said sum may be deducted from any
money due the member in the possession of the association.

ARTICLE XV.—Accounts and Auditing.

Section 1. This association shall install a standard system of accounts, and
provide such accounting appurtenances as may be necessary to conduct the busi-
ness in a safe and orderly manner.

_= These sections are applicable to capital-stock organizations. On p. 48 suitable sec-
tions for nonstock organizations are suggested.

COOPERATIVE MILK-DISTRIBUTING PLANTS. 43

Src, 2. The books and records of the business of the association shall be aud-
ited (monthly) by a competent auditor selected by the board of directors. <A
complete annual audit shall be made by a competent accountant previous to
the date of each annual meeting, at which meeting the report of the auditor
shall be presented in full. Special audits shall be made upon order of the board
of directors or upon a majority vote of the members present at any regular
or called meeting.

ARTICLE XVI.—Amendments.

SEecrion. 1. These by-laws may be amended at any meeting by two-thirds vote
of the members present in person or voting by registered mail, provided that
notice of such proposed amendment is included in the call for said meeting.

BY-LAWS FOR NONSTOCK ORGANIZATIONS.

While most of the cooperative milk plant organizations have been
formed with capital stock, the nonstock plan has been adopted in some
instances. The following articles are suggested for substitution for
the corresponding articles in the preceding by-laws in adapting them
to organizations formed without capital stock.

ARTICLE Il I—Membership.

Section 1. Any bona fide producer of dairy products in the territory served by
this association may become a member of the association by agreeing to com-
ply with the requirements of these by-laws.

Src. 2. Upon the payment of the membership fee, the association shall issue
a certificate of membership to the applicant. Such certificate of membership
shall not be transferable. The willful violation of the by-laws of this associa-
tion or of the contract or contracts entered into by the association with any
member shall constitute a sufficient cause for expulsion of such member.

Sec. 8. No member shall be expelled from the association except by a two-
thirds vote of the members present at any annual or special meeting following
the mailing of a notice to each member in accordance with these by-laws, speci-
fying that the matter of the expulsion of such member is to be voted on at the
meeting. The member shall have charges preferred against him 10 days in ad-
vance of such meeting and shall have an opportunity to be heard in person, by
counsel, and by witnesses. After a hearing, if the board of directors determines
that a member has ceased to be a bona fide producer of dairy products, his mem-
bership shall be terminated and his membership certificate canceled.

ARTICLE X.—Membership Fees and Finance.

a Section 1. Each member shall pay in advance to the association a member-
ship fee of ($ ie
r Src. 2. Certificate of indebtedness which shall draw interest at the rate of
(6) per cent per annum, may be issued by the board of directors to provide
capital to be used for the purchase or construction of buildings, the lease or
purchase of lands, the purchase of equipment, and for other purposes.

Sec. 8. These certificates shall be issued in series and shall be retired by a
_ special fund created by levying a percentage assessment, to be determined by
the board of directors, on the products sold through the association. This
amount shall be. sufficient to retire all certificates as they fall due and pay the
“interest thereon.

44 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE.

Sec. 4. At the end of each fiscal year each member shall receive a certificate
for the amount of money which he has contributed that year to the special
loan fund levied on his products. 'These assessments shall continue from year
to year, and out of the proceeds arising therefrom the holders of certificates
shall be paid the amounts due them, and this process of repayment shall con-
tinue during the life of the association,

ARTICLE XIV.—Refunds and Damages.

Section 1. After the season’s expenses are paid and a Suitable sum, to be
determined by the board of directors, set aside for depreciation and reserves,
the balance of the season’s returns of savings on products shall be divided
among members and nonmember patrons, if any, in proportion to the value of
their products sold or handled by the association for them.

Sec. 2. Any member who fails to live up to his agreement, or fails or refuses
to deliver his products to the association for sale in accordance with said
agreement shall pay to the association as liquidated damages the sum of
for each of not delivered by him to compensate the association for
the loss sustained by the breach and to enable it to meet and equitably dis-
tribute overhead and maintenance expenses involved in the operation of the
association and in providing and maintaining facilities for the handling and
marketing of the products of its members; said sum may be deducted from
any money due the member in the possession of the association.

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